Cut in spending should be focus of budget deal

July 18, 2011

Freedom New Mexico

This weekend, debt-ceiling wrangling in Washington remained stuck — a hash of politics (proposals are tied to 2012 election impact); ideology and principle (the rich should pay more; spending should be cut; the budget must balance); an attempt to solve everything at once with every possible remedy (see “politics”) and, as always, money.

Freedom New Mexico’s view is that raising the debt ceiling is a short-term battle, and it should be fought over cutting spending, because that is what is driving the debt crisis, with tax increases off the table. Republicans need to stand together. In the mid-term, comprehensive tax and spending reform are needed. And, the president should stop scaring people about their Social Security checks.

President Barack Obama and Democrats in Congress are playing the class-warfare game, targeting the wealthy. It’s an old game that, when Republicans play it, they always lose. In particular, President Obama proposes raising taxes on “millionaires” who fly around in corporate jets — who could object? But the details of his tax plan show he wants to increase taxes on those with household incomes above $250,000 a year. That limit would negatively affect about 48 percent of small businesses because they are taxed at personal rates, not to mention a swath of two-income households.

“That’s certainly not millionaires and billionaires, especially if you live in Manhattan or California,” Curtis Dubay told us; he’s a senior policy analyst at the Heritage Foundation. He added that restoring strong economic growth is essential to sparking higher revenue collection, and increasing tax rates actually would retard the economy and, with it, revenue collection.

The Wall Street Journal noted July 13 that raising taxes on earnings above $250,000 “would raise only $700 billion over a decade. … The deficit is now about 10 percent of gross domestic product. To get it to 3 percent, a level many economists deem sustainable, by 2015 solely by raising taxes on $250,000-plus households would require more than doubling their top tax rate to 76.8 percent” — an absurdity.

Obama and the Democrats also are insisting on getting rid of tax breaks on such things as corporate jets, hedge funds and oil subsidies. We’re not opposed to ending corporate welfare breaks. Esmael Adibi told us that, in the long term — once the economy starts growing decently again — getting rid of such loopholes would make sense as part of comprehensive tax reform that reduces overall tax rates. Adibi is director of the A. Gary Anderson Center for Economic Research at Chapman University. But in the short term, he said, the worst thing to do would be to increase tax rates.